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A Closer Look at the Technology Reshaping Family Offices

Band-aid solutions will no longer work.

The complexity of operating family offices is expanding on multiple fronts. The investable universe, tax codes, legal structures and client expectations have surpassed the capabilities of older, generalized systems. Fortunately, there’s no longer a need to wait for technology that can effectively manage the increasing volume of wealth management data. Today’s software, tailored specifically for family office requirements, can solve inefficiencies, incorporate complex assets and transactions, reduce data processing hours and meet client expectations.

However, the adoption of new technologies at family offices has been, at best, uneven. This hesitation is understandable, if a little myopic. The upfront commitment to evaluate and roll out new technology can be a hard sell to family office staff who are already pressed for time. When weighing the need for efficiency against the fear of adopting new systems, family offices should intuitively understand that they need to solve the problem of data management.

The Band-Aid Upgrades

Family offices often know that productivity is hindered by aging technology, and the first place that many offices turn to, often the safest bet, has been software that improves on specific communication processes. These solutions have included software directed at improving specific tasks, such as document management solutions (allowing family members to review signed agreements in much less time) and virtual collaboration tools (the ubiquitous video conferencing of the pandemic). Many of these tools have helped solve issues around remote and asynchronous work. They’ve improved the customer experience on some level, and they’re often an easy swap or easily adopted standalone product.

Unfortunately, these solutions don’t address the problems of the growing need for data integration and aggregation. In fact, they can add to the data problems - the systems don’t work well together, leaving staff to copy and paste customer information from system to system or into Excel workbooks.

Additionally, the solutions that are most often implemented don’t improve the value chain of the family office. Family offices remain woefully underinvested in technology specifically related to the core competencies, such as general ledger accounting, portfolio management and performance reporting.

The Need for Automation

The investable universe has increased, enabling more choice and diversification for clients and highlighting financial data complexity. Access has opened to new and more sophisticated vehicles (such as private equity and private debt), cryptocurrencies, and alternative asset classes. These vehicles carry a variety of reporting requirements and require different data streams to track valuations and ownership in a timely manner. A push towards more international investments has increased the burden of compliance and valuation with increasing exposure to more tax regimes and currencies. All of these factors are magnified by simple asset growth.

Meanwhile, client expectations have increased. Clients expect faster, multi-platform reporting (mobile and desktop). A 30-day lag for a portfolio report is no longer acceptable. The baseline of client service, within and outside the financial industry, has ramped up, with same-day or next-day reporting becoming the expectation. Family offices are challenged to meet the paradoxical need for more simplicity and more reporting options.

This rising complexity burdens family offices that rely on generalist software or incomplete legacy systems. With new investment options and asset classes, family offices receive and process more non-standardized data, often received in email text, PDF or CSV format. To handle these disparate types of data, staff must supplement system capabilities with data entry in Excel spreadsheets or sometimes even pen and paper. The business case for adopting new technology is hidden in plain sight with every manual piece of data that’s been moved from a performance file to a spreadsheet, from a customer management system to an accounting system, from a website to a client report.

But there’s a natural resistance to change that keeps offices operating inefficiently. To help alleviate the roadblocks to change, a strong change management plan is imperative. And that plan starts with outlining the pain points of a particular office. Focus on the data and its stewardship, and then begin to analyze solutions from a data perspective.

Closing the Service Gap

Further, family offices must self-reflect to understand where their money is. Given the complexity of the investment portfolio and sophisticated ownership structures, family members can’t obtain pertinent information about wealth quickly and accurately. The core challenge comes down to family offices and family members having varying perceptions about the same thing such as reporting excellence and financial control, meaning there’s little to no consensus about family needs and what family offices can offer.

The gap in service can be attributed to the lack of transparency in understanding the family’s needs and lack of feedback from families regarding the status quo leading to different management expectations. With no benchmark for reference, closing the service gap can be challenging.

Data-Savvy Software

When evaluating and prioritizing new tech, it’s all about data handling and automation. Family offices that focus on end-to-end data stewardship are seeing more efficiency and providing a better client experience. Accounting tasks are reduced, data entry steps are eliminated and client reports are aggregated and sent with zero market lag.

To make these strides, a focus on incoming data is paramount. Any new solution should have robust APIs (application programming interfaces that can connect two applications, such as a banking application and personal finance software). However, APIs alone won’t solve for the most complex investment structures. Platforms that can automate data importing when APIs aren’t available – by scraping PDFs or processing CSVs, for instance – ensure that the platform can accommodate a family office’s operating structure today and into the future. New industry-specific platforms can also aggregate data sources to provide quicker valuations for less liquid or transparent assets, such as private equity holdings.

Once the data from outside sources is in-house and cleaned, a platform should be able to communicate the data to the client without additional software. The goal is to generate more accurate, timely, and useful reporting to enhance the client experience.

Unified Platforms

Family offices once relied (and many still do) on general accounting platforms or wealth management technology that was never tailored to the complexities of investment management and compliance for high-net-worth families. Some offices commissioned custom solutions, which are increasingly difficult and expensive to update as data streams evolve.

Several technology platforms today address the family office market directly. FundCount, Addepar and Archway are examples of integrated systems that incorporate general ledger, portfolio management and performance reporting. With the aim of greater data stewardship, some platforms (iPaladin and FundCount for instance) incorporate robust compliance tracking tools, eliminating more data import and export steps.

When seeking a new platform, family offices will want to evaluate platforms that can handle complex processes that are often patch-worked together. Among the solutions today, the growing list of capabilities include:

  • Handling new asset classes and multiple currency transactions;
  • Incorporating double-entry bookkeeping principles;
  • Integrating multiple tax regimes and legal entities; and
  • Aggregating and scraping data from multiple sources and file types.

There’s an increasing amount of data that family offices need to process, and it will only get more complicated going forward. Adding staff to address data management issues and implementing Band-Aid tech solutions won’t solve the long-term issue of data management. Luckily, modern wealth management platforms can capture and process disparate data streams in an automated and elegant way. Change management fears and hesitation to adopt new technology can be overcome by understanding that the problem home offices face is data, and we can solve that problem today.


Ashley Whittaker isPresident, Global Sales at FundCount

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